Fund Investing

Resources drag down Canadian equity funds, while bonds provide some shelter.
By Christian Charest | 04/07/12

Despite posting positive results in June, most equity and balanced funds in Canada were not able to overcome their losses suffered in the previous two months and ended the second quarter of 2012 in negative territory, according to preliminary performance numbers released today by Morningstar Canada. Among the 22 Morningstar Canada Fund Indices that measure the aggregate performance of equity fund categories, only two managed to stay positive last month. Among balanced funds, the target-date portfolio categories posted slight gains, while all other balanced categories were in the red.

About the Author
Christian Charest is the editor responsible for Web sites at Morningstar Canada. He has been in the investment industry since 1995, having previously worked for Laurentian Bank and Merrill Lynch Canada. He holds a BBA in finance from the École des Hautes Études Commerciales in Montreal.

Within the diversified equity categories, funds that invest in Canada typically had a harder time than their foreign counterparts in the second quarter, owing in large part to significant losses in the resources sectors. The S&P/TSX sub-indexes that measure the returns of the energy and materials sectors in Canada both lost more than 10% over the past three months.

As a result, the Morningstar Canadian Equity and Canadian Focused Equity fund indices lost 5.4% and 5.3%, respectively, for the quarter, despite solid showings in June. The indices that track the Canadian Small/Mid Cap Equity and Canadian Focused Small/Mid Cap Equity categories both lost ground in each of the past three months and showed losses of 8.3% and 7.6%, respectively, for the quarter, ranking near the bottom among all indices.

The only fund categories that did worse were those that focus on the resources and precious metals sectors; the Morningstar Natural Resources Equity Fund Index lost 15.7% for the quarter, while the Morningstar Precious Metals Equity Fund Index lost 16.9%. The only two equity fund indices that posted gains in the second quarter were also sector-specific: the Morningstar Real Estate Equity Fund Index gained 5.5%, while Health Care Equity was up 5.1%.

Equity funds, particularly those that invest outside Canada, posted solid results in June with Europe leading the way. The month saw a number of alarming signs for the market, with a disappointing U.S. jobs report on the first of the month, Europe in turmoil, and Moody's downgrading a number of global banks. However, on the last trading day of the month, global markets rallied on news that eurozone leaders came to an agreement to bail out troubled banks. In the end, the Morningstar European Equity Fund Index gained 5.1% in June, while the indices that track the Japanese Equity, International Equity and Global Equity categories gained 4.5%, 4.3% and 3.2% for the month, respectively. Unfortunately for investors, all of these categories lost more than 5% for the quarter.

Meanwhile, fixed-income funds enjoyed gains for the quarter as investors once again sought safe havens. All six of the fund indices that track bond categories saw positive returns during the quarter, ranging from 3.9% for the Morningstar Canadian Long Term Fixed Income Fund Index to 0.6% for Canadian Short Term Fixed Income. Among balanced and portfolio categories, the best performer with a 0.3% gain was the Morningstar 2020 Target Date Portfolio Fund Index, whose constituent funds consist mainly of fixed-income assets. The worst performer was the Morningstar Global Equity Balanced Fund Index, down 3.4% over the past three months.

Morningstar Canada's preliminary fund performance figures are based on the change in funds' net asset values per share during the month, and do not necessarily include end-of-month income distributions. Final performance figures will be published on www.morningstar.ca next week.

--Morningstar fund analyst Adam Fisch contributed to this article.

Fund IndicesJuneQ2-2012
Real Estate Equity2.25.5
Health Care Equity5.45.1
Canadian Long Term Fixed Income-0.43.9
Cdn Inflation-Protected Fixed Income-1.32.2
Canadian Fixed Income0.01.8
Global Fixed Income0.61.5
High Yield Fixed Income1.20.9
Canadian Short Term Fixed Income0.10.6
2020 Target Date Portfolio0.80.3
2025+ Target Date Portfolio1.60.2
2015 Target Date Portfolio0.50.2
Canadian Money Market0.00.1
Canadian Synthetic Money Market0.00.1
Global Fixed Income Balanced0.80.0
U.S. Money Market0.00.0
Canadian Fixed Income Balanced0.6-0.2
2025 Target Date Portfolio0.9-1.0
Canadian Neutral Balanced0.9-1.6
Global Neutral Balanced1.0-1.7
Tactical Balanced0.8-1.9
U.S. Small/Mid Cap Equity2.9-2.1
Canadian Equity Balanced1.2-2.7
Canadian Dividend & Income Equity1.1-3.1
U.S. Equity2.2-3.2
Global Equity Balanced1.6-3.4
North American Equity1.5-3.7
Greater China Equity0.5-3.9
Asia Pacific Equity2.5-4.0
Asia Pacific ex-Japan Equity2.3-4.0
Global Equity3.2-5.2
European Equity5.1-5.3
Canadian Focused Equity1.9-5.3
Canadian Equity1.2-5.4
Japanese Equity4.5-5.5
International Equity4.3-5.8
Global Small/Mid Cap Equity1.2-6.2
Financial Services Equity1.2-6.6
Emerging Markets Equity2.8-7.6
Cdn Focused Small/Mid Cap Equity-1.3-7.6
Canadian Small/Mid Cap Equity-1.2-8.3
Natural Resources Equity-2.5-15.7
Precious Metals Equity-2.1-16.9
Data as of June 30, 2012

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